MARKET WATCH: Crude oil futures price soars above $81/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 3 -- Prices for oil and petroleum products shot up Aug. 2, the first trading day of this month, with crude busting through resistance at $80/bbl in the New York market for the first time since early May to climb above $81/bbl amid a slew of favorable economic reports.

However, the front-month natural gas contract fell 4.5% “on forecasts of less severe temperatures than previously thought,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “The weather models are still calling for above normal temperatures across much of the country, albeit with much less severity.”

Analysts in the Houston office of Raymond James & Associates Inc. reported, “The Institute for Supply Management (ISM) released its index of manufacturing activity [on Aug. 2], which was above expectations, and strong earnings reported by European banks also pleased the market,” They added, “Energy stocks reacted strongly to the news, with the Oil Service Index jumping 4.5% and the Electronic Payment Exchange up 3.7%, outperforming the Dow Jones Industrial Average which was up 2%.”

Sharma said, “Although a largely positive earnings season and improving economic indicators in Europe have generally been supportive to prices, yesterday’s price jump was primarily driven by better than expected economic data on the domestic front and speculations that the Chinese government will reverse its policies designed to restrain growth. Those policies have already had the desired effects with manufacturing indexes in China dropping to the lowest level in more than a year.”

He noted, “The ISM manufacturing index fell to 55.5 in July from 56.2 in June, but was still better than economists’ expectations of a drop to 54.5. With supply/demand still relatively loose we would expect some profit taking to take place at the current price levels.”

Olivier Jakob at Petromatrix, Zug, Switzerland, had a more cautious outlook, however. He pointed out, “The ISM numbers released yesterday show the Purchasing Manager's Index (PMI), new orders, and production falling in July vs. June. The indices are above 50, which is still a positive, but this now makes 3 consecutive months of decline in the main ISM indices.”

Jakob said, “The decline in the PMI was slightly less than expected, and this was then taken by many as the ex-ante explanation for the surge in oil prices yesterday. Most of the oil rally occurred, however, before the ISM data was released, and we will not concur with the view that oil was surging because the ISM was falling less than expected.”

Instead, he said, “The dollar continued to be under heavy pressure, the Volatility Index is falling to lower levels, the Standard & Poor’s 500 finally managed to break the resistance of the 200-day moving average. The exogenous inputs were all positive and would have provided support to oil prices on renewed appetite for risk exposure.” However, West Texas Intermediate “is overpriced to the exogenous correlations by about $2/bbl. Hence, from our observation point we can not decipher yesterday’s surge in WTI as something else than technical buying on the successful break of the resistance of $80/bbl,” he said.

Meanwhile, Jakob said, “Tropical Depression Four (potentially becoming named-storm Colin) will mainly be a concern for oil traders that have planned some holidays in the Bahamas. It is not on a path to any upstream oil assets [in the Gulf of Mexico]. Since it is heading towards the US East Coast, we can not fully exclude at this stage some proximity risk to downstream oil assets in the Northeast, but since hurricanes usually loose intensity as they move up north we do not want at this stage to price any significant risk premium for that low probability.”

Energy prices
The September contract for benchmark US sweet, light crudes climbed from $78.83/bbl to as high as $81.77/bbl in intraday trading Aug. 2 before closing at $81.34/bbl, up $2.39 for the day on the New York Mercantile Exchange. The October contract escalated by $2.37/bbl to $81.76/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.39 to $81.34/bbl in step with the front-month crude futures contract. Heating oil for September delivery rose 6.57¢ to $2.15/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 4.61¢ to $2.17/gal.

The September natural gas contract fell 22.2¢ to $4.70/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 11.5¢ to $4.93/MMbtu.

In London, the September IPE contract for North Sea Brent crude jumped by $2.67 to $80.82/bbl. Gas oil for August gained $31.75 to $680/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes advanced $2.66 to $77.09/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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